Human Rights Committee report on bonus tax

21 December 2009

Parliament’s Joint Committee on Human Rights argues in a report published on 21 December, that it is unlikely that bankers affected by the tax on bonuses proposed in the Pre-Budget Report will be able to challenge it successfully under the Human Rights Act.

The Committee also concludes that as the new powers proposed in the Financial Services Bill to enable the Financial Services Authority to control pay packages so as to manage risk are not intended to apply to existing contracts, they also should not present any problems under the Human Rights Act.

The hurdle facing anyone challenging a tax proposal under the Human Rights Act or the European Convention is very high.

They must demonstrate that the measure is "devoid of reasonable foundation" or imposes an "excessive and individual burden which is disproportionate to the public good".

The Committee states that even on the basis of the summary justifications provided in the Pre-Budget Report, it would appear difficult to conclude that the measure is devoid of reasonable foundation.

The reasons given by the Committee are:

the bonus tax is likely to raise an estimated £0.55billion

it is part of a package designed to address excessive risk-taking in the banking industry and to require banks to consider the soundness of their capital base

it is directed at banks rather than individual bankers

it is intended to be a one-off tax, in place only until the more systemic reforms in the Financial Services Bill come into force

Andrew Dismore MP, Chairman of the Human Rights Committee, said:

"Some people have tried to suggest that the tax on bankers’ bonuses announced in the Pre-Budget Report would infringe their human rights.

"Having looked at the proposals we believe this is highly unlikely.

"The measure is clearly justified in the Pre-Budget Report and it’s hardly the case that the recipients of these bonuses will be able to show they are experiencing an excessive burden of financial hardship as a consequence of the tax."